Youthful labour goes to private enterprise.

Jiangsu provincial authorities have approved the setting up of 200 offshore enterprises and institutions, with an investment of US$189 million. This "seek and secure" sector of the economy includes 88 "private" firms that comb operations for investment around the world, primarily looking at South East Asia, Africa, the US and Australia.

For these private-style enterprises, investment from Chinese provincial authorities amounts to US$102 million, representing the majority of Jiangsu's total investment overseas. The average investment for each enterprise is US$1.1 million, with particular investment goals in the electronics, machinery, textile, clothing, food and real estate sectors.

So far, Jiangsu has given more than 40 enterprises the go-ahead to set up trade organisations and offices in Hong Kong.

Hong Kong is indeed Jiangsu's largest operating centre outside the mainland, with cumulative investment from the province amounting to US$21.7 billion and contracted investment amounting to US$43.8 billion.

The SAR is also one of Jiangsu's most important trading partners. Trade volumes have increased by 150% over the past three years, hitting US$7.3 billion in 2004.

Jiangsu enterprises primarily look to Hong Kong for cooperation and professional advice in the areas of capital, technology and services.

Products of a Xuzhou private enterprise attract overseas buyers.

SVT is a well-known private enterprise in Jiangsu.

Some private enterprises in Jiangsu are handicapped by a shortage of funds. In the international capital market, so the saying goes, idle funds are eagerly seeking investment with high returns - so private entrepreneurs in Jiangsu believe that international capital is not beyond their reach, provided that they have a sound business model and profit-making structures.

In their opinion, it is difficult to raise capital on the domestic market. The queue is long and there are many uncertainties.

The decision of the China Securities Regulatory Commission to suspend the floatation of new stocks has also forced Jiangsu enterprises to postpone their plan to list their shares on the domestic main and growth enterprise boards.

By comparison, Hong Kong has a larger capital market and wider financing scope. The cost of capital is also lower.

Listing in Hong Kong not only gives these entrepreneurs direct access to international capital markets but also makes refinancing relatively easy.

Decree to develop co-operative ventures

According to Jiangsu governor Liang Baohua, the province must strengthen cooperation with Hong Kong's financial and securities sectors and support more enterprises to seek listings in Hong Kong. The corollary is to make maximum use of the maturity and regulation of Hong Kong's capital market to help improve the management of Jiangsu enterprises.

Jiangsu has 14 enterprises already listed on the Hong Kong Stock Exchange (HKSE). But many private enterprises in economically well-developed parts of the province, such as Suzhou-Wuxi-Changzhou, Nantong, Yangzhou and Taizhou in southern Jiangsu and Xuzhou in northern Jiangsu, are also seeking to list in Hong Kong.

Jiangsu private enterprises underline technology.

Jiangsu enterprises go for management control.

The government of Jiangsu launched its W3100 Project in September 2004 to help 100 private enterprises initiate offshore listings over the next three years. The W3100 leading group headed by Han Qinghua, deputy secretary general of the provincial government and director of the provincial economic and trade committee, was set up just for this task.

At the same time, officials from the department of science and technology and the development and services department of Jiangsu's bureau for small and medium enterprises were transferred to man the newly established W3100 Project Office. Various cities were asked to set up similar offices to promote the project.

The W3100 Project Fund was set up to provide subsidies of Rmb300,000 (HK$288,461) to each private technological enterprise formally listed or approved by offshore stock exchanges for listing after January 2004. Local governments and competent departments would also give support in a similar manner.

New preferential policies will be introduced this year. These will include the setting up of technological transformation funds, technological innovation funds and treasury bond support funds. Other preferential measures will be announced to assist enterprises in their offshore listing.

According to officials of the listing office of Jiangsu province, issuing shares in offshore capital markets has become the key strategic moves of small- and medium-sized private enterprises over the past two years.

HK placements and public offerings

There are different creative ways for Jiangsu enterprises to go public in Hong Kong, the most usual in the first instance being to invite offshore strategic investors as partners in private placements.

When the company's business performance, organisation structure and other conditions have matured, companies may list shares on the stock market in public offerings. Some enterprises use the securities market as a platform to enter overseas capital markets through acquisitions and mergers and raise funds by issuing additional shares or warrants.

Also, there are several financial vehicles such as hedge funds and forward currency mechanisms that require professional advice and expertise.

Private enterprises in Jiangsu are mostly large and modernised.

At present, 200 private enterprises in various parts of Jiangsu have submitted their plans for offshore listings to the provincial government.

These enterprises generally have reasonably good economic track records, development and growth prospects, a sound operating mechanism and are professionally-managed. Their principal products also enjoy a high reputation in international and domestic markets and have a stable market share for three consecutive years.

Jiangsu will also gradually set up an intermediary service system to help enterprises raise capital offshore. According to officials concerned, Jiangsu plans to have 20 enterprises listed offshore in 2005, and the number will be increased to 40 in 2006 and 100 in 2007.

Hong Kong, New York and Singapore are the major destinations. Enterprises seeking offshore listing will formulate strategies, decide on the form of listing according to their own conditions and will choose a suitable market based on investor recognition and market supply and demand.

Jiangsu will allocate funds from the provincial small and medium-sized enterprises bureau over the next three years to subsidise companies planning listings. These funds may be utilized for paying visits to securities markets abroad, inviting intermediary bodies to draw up listing plans and for personnel training.

Jiangsu leads the country for private enterprise funding.

In 2004, eight private scientific and technology enterprises in Jiangsu successfully listed their shares offshore. Among them, Nanjing Sample Technology Co Ltd, Jiangsu Tongguang Microelectronics Co Ltd, Jiangsu Century Rainbow Textiles Co Ltd, Changzhou Sen Yuan Switch Co Ltd and Suzhou Langlifu Health Food Co Ltd are listed in Hong Kong and the remaining three companies are listed in Singapore.

Although some private Jiangsu enterprises have successfully listed their shares on the HKSE, others who want to follow in their footsteps to raise capital in Hong Kong must overcome certain hurdles.

In terms of listing cost, overseas listing is much more expensive than listing on the domestic market. Generally speaking, the cost of listing on the domestic main board market is about 5% of the capital raised, so if the capital raised is Rmb200 million (HK$192 million), the listing cost amounts to some Rmb10 million (HK$9 million).

However, the listing cost will rise 10% if the listing is on the US Nasdaq and 20% at HKSE. Even if shares are only listed on Hong Kong's growth enterprise market (GEM), it will still cost Rmb15 million (HK$14 million), or between 10% and 15% of the capital raised.

Moreover, Jiangsu's private enterprises know next to nothing about the rules of offshore listing. The Hong Kong Securities and Futures Commission requires companies seeking listing on the main board to have net assets worth not less than HK$400 million, while HKSE requires companies to have total profits of HK$50 million in the three years prior to the application for listing.

Monitoring is also much stricter in Hong Kong. Listed companies need to explain everything, such as the purchase of company cars, in detail. HKSE also has strict requirements regarding sponsors, accountants and disclosure of company information. Not all Jiangsu enterprises can easily meet these requirements.

Tires produced in Taizhou, Jiangsu are world famous.

Private enterprises are subject to all kinds of control after they are listed. Before listing, Jiangsu enterprises can make decisions very quickly and don't require government approval to start new projects. After they are listed in Hong Kong, all external investments must follow stipulated procedures and have be promptly disclosed. The capital raised must be used according to the prospectus, not as the management pleases.

Furthermore, these Jiangsu-based and Hong Kong-listed companies are monitored by both mainland and Hong Kong regulatory bodies. The differences between the two legal systems make their situation quite complicated. Since they have to seek HKSE approval to start new businesses after listing, they are afraid that delays in approval may adversely affect their business opportunities.

Outdoor advertiser successfully floated

The Jiangsu Dahe International Advertising Group, the largest outdoor advertising agency in Jiangsu, successfully listed in Hong Kong in November 2003.

The company has a 15% share of China's outdoor spray-paint advertising market and its turnover tops its peers in China.

The business mainly covers concept creation, design, spray painting, production and outdoor advertising. In addition to spray painting, which is its specialty, it also designs and produces outdoor advertisements, such as billboards, advertising poles, light boxes and pamphlets, for clients.

Jiangsu Dahe now has over 4,000 corporate clients in different sectors, including consumer products, telecommunications, household goods, information technology, food and beverages, automobiles and petroleum.

The group has a registered capital of Rmb138 million (HK$132 million). Its subsidiaries include the first listed company in China's local advertising industry, first-class advertising enterprises and members of the Outdoor Advertising Committee of the China Advertising Association. It has total assets worth nearly Rmb500 million (HK$480 million) and employs 1,200 people, ranking sixth in the overall sector.

With branches in nearly 30 mainland cities, Jiangsu Dahe is able to provide clients with integrated media services, ranging from strategies, creation and design to production, engineering, release, monitoring and assessment, using its trans-regional network of resources.

This is the first high-tech enterprise in China's advertising sector, the first to win the "well-known trademark" title and the first to pass the ISO9001-2000 certification, being praised by the western media as "a model digital enterprise with the highest technology content in Asia".

Listed in Hong Kong as an H-share company in 2003, the group's primary objective was to raise funds, build up its brand name and enhance its reputation. In the past year or so, it has raised over HK$100 million and expanded its business.

Listing in Hong Kong has injected new vitality into the group. Its business volume has steadily grown as its reputation has soared in the international and domestic markets. The group believes that as Hong Kong is home to large numbers of international companies, listing in Hong Kong will help increase their reputation and credibility and attract more job orders from foreign clients.

Hong Kong's legal system and governance are also elements helping to improve the group's mechanism of internal management for the benefit of its long-term development - with plans to set up a branch in Hong Kong to serve Hong Kong clients.

from special correspondent Chen Min, Nanjing